Anyone who has done even a little research into real estate investments has probably read about turnkey properties. In a business where flipping homes and BRRRR’s (Buy, Rent, Rehab, Refinance and Repeat) investments have become incredibly popular, turnkey properties often are not fully considered by investors. For those who may be unfamiliar with the term, a turnkey property is a home that has been fully renovated and can be immediately rented out (i.e. ready to use as soon as you turn the key).
Should a relatively new investor consider turnkey properties instead? Let’s dive into a number of reasons why turnkey properties might be the optimal investment.
3 Benefits of Turnkey Properties
(1) Perhaps the most significant benefit lies in what you don’t need to do. When flipping a property (to sell or to rent), you need (or need to hire people with) skills including rehabilitation and remodeling, appraising current and future value, fully understanding the market, and identifying ways to finance improvements. Meanwhile, with turnkey rental properties, you simply need to understand the math and conduct research.
(2) Another benefit of turnkey properties is the lower degree of risk. We’ve all watched those home renovation shows that can be quite addicting. They are enjoyable for two major things: the transformation and the suspense of problems. However, unexpected problems can mean disaster for an investor. With turnkey properties, the property has been recently fully renovated. In addition, any problems with the home can be discovered during the home inspection and the sellers can be required to fix them if they don’t want you to walk away from the deal. Most reputable turnkey providers should focus on the four major components of the house: the roof, HVAC, plumbing and electrical. Since the property is fully renovated, investors will own a property that has zero deferred maintenance. Less problems, less risk.
(3) The third major benefit of turnkey properties is that they begin generating money immediately. There is no need to have costs accrue while completing renovation. You can simply buy the property and rent it out or have a tenant already in place producing immediate cash flow. While turnkey properties will not gain the equity that rehabbing a home yourself will, the instant cash flow and low risk is a definite selling point for many investors.
What are the 3 steps you should take?
When it comes to investing in turnkey properties, there are a few things that a new investor can do. First is research, which is incredibly important. This can include learning more about the neighborhoods of prospective properties and trends in market value and the popularity of the area with renters. Cash flowing markets such as Indianapolis, Memphis and Birmingham are popular for investors as they showcase low priced homes that generate enough rent to allow for positive cash flow. However, be wary, that low priced homes do not always guarantee a good investment. Make sure to do your research on the neighborhoods and market trends in that area. One key tool is to partner with a reputable, professional and honest turnkey provider that understands the local area. When you partner with a turnkey provider, they will do the homework for you, renovate the property and then place a quality tenant. It is simply: real estate “done for you”.
(2) Analyze numbers & Inspection
Once a property is identified, it is important to conduct a thorough examination including verifying the potential rental income as well as getting quotes for property insurance and know what the yearly property tax is. These numbers are important to know in order to calculate your monthly cash flow and cash on cash return.
It will also be important to hire a 3rd party property inspectors to identify any issues with the rental property or anything that needs to be completed (even if it was claimed to be completed by the turnkey provider). For work that needs to be done, you can request that the seller complete the work themselves or discount the selling price by the estimated cost of having it done.
Finally, the last thing that needs to be done is simply the typical process of making an offer and (if needed) obtaining financing, steps that are a part of virtually every property sale. As soon as the sale is finalized, you can start earning rental income for the property.
(3) Find Good Management
Another consideration is whether or not to hire a property manager. A property manager can handle the various tasks of renting the property, arranging maintenance, and dealing with renter concerns. However, some people may want to simply handle these tasks themselves, particularly if they only have a few properties. Most turnkey providers will have an in-house property management team that will smoothly transition your purchase into.
Overall, while finding your own properties and rehabbing them can be exciting but risky, it is important for potential investors to consider the value of turnkey properties as well. With a turnkey property, there is less risk, income can be generated more quickly and reliably, and the process is much simpler.
Intrigued? Too good to be true? Tune in to our recent Facebook Live real estate presentation by real estate investor, Dr. Julie Phan and CEO and co-founder of Alliance Wealth Builder, Merve Plank as they discuss important tips for investors when buying turnkey rental properties
Merve will share details about how his company can help busy professionals acquire turnkey rental properties by leveraging his team and resources. Lastly, Merve will share a few proformas of recent properties to help you understand what types of returns to expect when purchasing a turnkey rental property.
Like all investments, please do your proper due diligence and understand that all investments have inherent risks. Please feel free to shoot us a message if you have any questions!
Please feel free to reach out to Julie Phan O.D. at firstname.lastname@example.org or you can DM her on her IG @house_house
Please visit alliancewealthbuilders.com and contact Merv directly to learn more about his company